Which of the Following Statements Is False

question 11

Multiple Choice

Which of the following statements is false?

• A) Even though firms have not issued new equity, the market value of equity has risen over time as firms have grown.
• B) While firms seem to prefer debt when raising external funds, not all investment is externally funded.
• C) To receive the full tax benefits of leverage a firm needs to use 100% debt financing.
• D) If bankruptcy is costly, these costs might offset the tax advantages of debt financing.

---

Definitions:

Estimated Payments

Periodic advance payments of expected tax liability, often required for earners not subject to withholding taxes like self-employed individuals.

Tax Liability

Refers to the total amount of tax that an individual or business is obligated to pay to the government, based on earnings, property ownership, and other taxable income sources.

Social Security Taxes

Taxes collected from employees and employers to fund the Social Security program, providing benefits for retirees, the disabled, and survivors.

Medicare Taxes

Taxes withheld from employees' paychecks and also matched by employers to fund the Medicare program, part of the Federal Insurance Contributions Act (FICA) tax.